Spending up, jobless claims down

Consumer spending rebounded in May following the largest drop in more than three years, a sign the biggest part of the economy will underpin growth this quarter.

SHOBHANA CHANDRA

WASHINGTON — Consumer spending rebounded in May following the largest drop in more than three years, a sign the biggest part of the economy will underpin growth this quarter.

Household purchases, which account for about 70 percent of the economy, rose 0.3 percent after a 0.3 percent decline the prior month that was the biggest since September 2009, Commerce Department figures showed Thursday in Washington. Incomes advanced 0.5 percent, more than projected.

The report may help ease concern about the outlook for the economic expansion after data Wednesday showed household purchases rose at a slower pace than previously estimated in the first quarter. Rising home prices and an improving job market, combined with faster income gains, may help to accelerate spending in the last six months of 2013.

"We're going to have a healthy second half," Brian Jones, a senior U.S. economist for Societe Generale in New York, said before the report. "We don't need to worry about consumer spending. Consumers are doing fine. People feel comfortable about their jobs and they're willing to spend."

Jobless claims decreased by 9,000 to 346,000 in the week ended June 22 from a revised 355,000 the prior period, a Labor Department report also showed Thursday. Smaller reductions in headcounts indicate employers are confident enough that demand will be sustained as the housing market improves and consumers grow more optimistic.

The median projection of 83 economists in a Bloomberg survey called for a 0.3 percent rise in spending. Projections ranged from gains of 0.1 percent to 0.7 percent. The April reading was previously reported as a drop of 0.2 percent.

The Bloomberg survey median called for incomes to rise 0.2 percent. The prior month's income figure was revised up to show a 0.1 percent gain from unchanged.

Gross domestic product grew at a 1.8 percent annualized rate from January through March, down from a prior reading of 2.4 percent, Commerce Department data showed Wednesday. Consumer purchases were trimmed to a 2.6 percent advance — still the fastest in two years — from the 3.4 percent gain estimated last month as Americans cut back on services from vacations to legal advice.

The saving rate increased to 3.2 percent from 3 percent. Wages and salaries climbed 0.3 percent. Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.2 percent in May after a 0.1 percent decrease in the previous month, today's report showed.

The Commerce Department's price index tied to spending, the gauge tracked by Federal Reserve policy makers, increased 0.1 percent. The so-called core price measure, which excludes food and fuel, also rose 0.1 percent from the prior month and was up 1.1 percent from May 2012, matching the record low.

One area of spending that remains a bright spot is automobiles. Cars and light trucks sold at a 15.2 million annualized rate in May, putting 2013 on course to be the best year for the industry since 2007, data from automakers show. Ford Motor Co. said it is adding 2,000 workers at its F-150 factory in Missouri to increase production of pickups beginning in the third quarter.

Americans are also buying property. New home sales jumped in May to a five-year high, data showed this week. The demand is fueling real-estate values, helping to boost wealth. House prices in 20 U.S. cities in April had the biggest year-over-year gain since March 2006, according to S&P/Case-Shiller figures.

Kroger Co., a supermarket and convenience store chain based in Cincinnati, is among companies watching for signs of how customers may fare in coming months.

"While there are signs of a better economy, the improvement is not robust," David Dillon, chief executive officer, said in a June 20 earnings call. "Consumer sentiment is gradually improving, but remains fragile. We continue to see high variability in sales comparisons between days and weeks."

The Fed will probably taper its $85 billion in monthly bond buying later in 2013 and halt purchases around mid-2014 as long as the economy performs in line with its projections, Chairman Ben Bernanke told reporters on June 19 after policymakers' two-day meeting.

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